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Mumbai, Nov 23: The Credit Rating Information Services of India Ltd (Crisil) has said that the dependence of plantation companies on further inflow of deposits is going to continue to increase progressively in order to provide assured returns to investors in a timely manner.
Crisil, in its outlook for plantation companies, has said that the risk factors for the collective investment schemes of plantation companies in general are extremely high, leading to a high expectation of default on obligations. Crisil believes that the future liabilities on account of the funds raised through collective investment schemes by plantation companies are significantly high when compared with the likely cash generation from their activities.
Subsequent to the directive from the Securities Exchange Board of India (Sebi) to the plantation companies to obtain ratings for their collective investment schemes, Crisil, in April 1998, evolved a methodology highlighting the salient criteria and risk issues pertaining to the ratingof collective investment schemes of plantation companies.
The important risk issues identified by Crisil included an unregulated access to public subscriptions towards collective investment schemes by the various plantation companies, extremely low and negligible capitalisation levels in the absence of any stipulated norms, lack of model accounting standards and inadequate disclosures with regard to end use of money raised through the schemes.
Other risk issues identified by Crisil were the flexibility to assure apparently unrealistic returns to the investors, tendency to incur excessively high expenses for raising resources and almost complete dependence on collective investment schemes on the funding side. Legal issues related to ownership and transferability of land, adverse liability profile and the criticality of continuing subscriptions towards the collective investment schemes are some of the risk areas of plantation companies.
Subsequent to announcing its criteria and methodology for rating ofthe schemes of plantation companies, Crisil has assigned ratings for more than 25 such companies. All the ratings assigned by Crisil so far have been Grade-V, which is the lowest on the rating agency's scale. The rating indicates high uncertainty that the collective investment scheme will provide the assured returns. The risk factors for such schemes are extremely high leading to a high expectation of default on obligations.
The rating agency has, meanwhile, assigned a Grade-V rating to the collective investment scheme of Golden Forest (India) Ltd. The rating reflects very high overall risk profile characterised by negligible inflows from operations, extremely high leverage due to near total dependence on retail deposits, high costs associated with raising these deposits and ambitious real estate development projects proposed to be implemented.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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